A sign advertises cash paid for used cars in Alhambra, California on January 12, 2022.
Frederic J. Brown | AFP | Getty Images
DETROIT – Wholesale used vehicle prices have fallen significantly from a January record high, indicating that the worst of skyrocketing prices linked to higher inflation in the US may be behind us.
Cox Automotive said Friday that the Manheim Used Vehicle Value Index, which tracks the prices of used vehicles sold in its U.S. wholesale auctions, fell 1% in April from March, marking the third straight month of declines since the first. month of the year.
“We’ve clearly returned to vehicles depreciating again. That’s a good news story for both inflation and consumers looking to buy a vehicle,” Jonathan Smoke, chief economist at Cox Automotive told CNBC.
Wholesale car prices have fallen 6.4% since the January record. However, prices are still extremely high and the index is still 14% higher than a year ago.
The price drop comes as Manheim estimates that used retail sales fell 13% in April from March, suggesting that demand is slowing amid record high prices.
Automakers have struggled for more than a year now with a shortage of semiconductor chips that has sporadically halted new vehicle production, leading to record-low vehicle inventory levels and higher prices. Circumstances have pushed many buyers into the used car market.
Smoke expects used car prices to remain high but return to “fairly normal patterns”, with the potential for some modest price increases later in the year.
“It might be getting a little deflationary in that regard,” Smoke said, adding that it doesn’t necessarily mean there’s going to be a huge price correction. “This is not a commodity market that people speculate about, and used vehicles are assets that actually provide people with utility.”
“We had an unusual circumstance in the last two years that stimulated demand, and we have limited supply,” he said.
Such declines are good news for the Biden administration, which has attributed much of the country’s rising inflation rates to the used vehicle market. Over the past 20 years, the contribution of used cars to inflation has been zero on average. In January, it contributed more than 1% year-on-year, according to data from the U.S. Bureau of Labor Statistics.
Persistent inflation has pushed prices to historic levels over the past year. The trend has been politically damaging to the Biden administration and has fueled fears of “stagflation,” an undesirable mix of rising prices and sluggish economic growth.
– CNBCs Kevin Breuinger contributed to this report.